[louprado]

The overlooked discussion is that universities are supposed to make money by selling quality education. Their goal shouldn't be to make money by risking money.

Perhaps the lower return simply reflects the less aggressive nature of their portfolio. But ironically while waiting in the lobby of a prominent VC I met a college endowment fund manager who was currently using machine learning to trade options. I believe part of the endowment is now traded using his system (not 100% sure about this).

When I asked why his approach won't suffer the same fate as LTCM, an algorithm-based options-trading system run by Noble-prize winner Robin Scholes, he claimed that his approach relied on less leverage. But he didn't address the point on how his system would have predicted the Asian flu and Russian default that ended LTCM. I guess it would have been harmful but not fatal.

What's acceptable risk for a Wall Street fund isn't necessarily appropriate for an endowment fund regardless of the upside.

[saosebastiao]

There is nothing inherently wrong with the LTCM algorithm. Using the same algorithm after the crash, it was eventually liquidated at a profit. The problem was how leveraged the investors were. Banks that invested in LTCM were so heavily leveraged in it that the temporary collapse of the fund was threatening the survivability of a few large institutional investors. The same fund likely would have performed very well for an investor that was not as heavily leveraged. The collapse would still be harmful but not fatal.

[tamana]

Top endowed unis don't sell education, they largely give it away, funded by endowment. They also fund research, making them unis not colleges.